In yield farming, users supply their funds to liquidity pools on Dex platforms. These pools consist of different cryptocurrency pairs. By doing so, they enable others to trade these assets, and in return, they earn a portion of the trading fees and, often, additional tokens or rewards provided by the protocol. Dex platforms use smart contracts to automate this process, ensuring transparency, security, and efficiency in the trading and yield farming activities.

Decentralized exchanges (DEX) play a pivotal role in managing liquidity within the cryptocurrency market. Liquidity, in this context, refers to the ease with which an asset can be bought or sold without significantly impacting its price. DEX platforms work on liquidity by allowing users to trade digital assets directly with one another without the need for an intermediary, such as a centralized exchange.